Institute of Certified Bookkeepers

Making you count

Accounting for Assets and Depreciation

July 2014

© 2014 Institute of Certified Bookkeepers

www.icb.org.au 1300 85 61 81 admin@icb.org.au
 Assets and Depreciation
Table of Contents
Introduction .........................................................................................................................................................................3
Current and Proposed Laws ...............................................................................................................................................4
Is it an Expense? ................................................................................................................................................................5
Is it an Asset? .....................................................................................................................................................................6
Business Turnover less than $2 million ..............................................................................................................................6
Motor Vehicles ....................................................................................................................................................................7
Business Turnover more than $2 million ............................................................................................................................8
Depreciation Rates Table ...................................................................................................................................................9
General Business Pool Records (<$2m turnover) ............................................................................................................10
Motor Vehicle Records .....................................................................................................................................................11
Low Value Pool Records (>$2m turnover) ........................................................................................................................12
Business Assets Records (>$2m turnover) ......................................................................................................................13
Bookkeeping checklist / Information of work performed in relation to Assets and
Depreciation………………………………………………………………………………………………….………....……………14

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Accounting for Assets & Depreciation (includes alternate methods of announced changes) July 2014

Introduction
In theory we do have a “Simplified” good system for accounting for assets. You do not have to keep track of each individual asset.
Today’s complication is knowing which thresholds apply for instant write off: Is it the law that actually exists or the law that the
government have announced is to apply? Allegedly the change will apply as from 1 January 2014 ie last tax year.

If it wasn’t for politics, the system of record keeping for assets IS simple. - Matthew Addison, Executive Director ICB

What to do while the law is uncertain?

The below explains the actual legal position. We have then provided comment as to how to apply the law that has been announced.

The announced changes are to drop the immediate write off from the $6,500 back to the $1,000. It also removes the instant $5,000
write off for Motor Vehicles. These changes only apply to business with turnover of less than $2 m per annum.

The concept in either case is you don’t need to keep a detailed listing of all assets! (Software companies take note – Pools apply!)

Treat the purchase of the asset just like any other purchase: allocate the GST exclusive purchase cost to an account called, say,
“Business Assets”. It is an account in assets on the balance sheet. The only records that need to be kept are the same as if it was an
office stationery expense, or advertising bill: keep the detailed tax invoice in the same way that you do for other expenses.

The individual asset enters a “pool” or an account that is the running balance of the (diminishing) value of those assets. If you sell an
individual asset then the proceeds reduce the value of the running balance of the pool. Each individual asset sold does NOT require
its own profit and loss calculation. It is all about the value of the pool.

For BAS purposes everything above $1,000 capital has to be coded and reported to appear in G10. Don’t ask me why but that is the
ATO requirement. For Income Tax it may be different, see below. Make sure you can reconcile the BAS Capital amounts to the Tax
Return reported Capital Purchases! They may not be the same, as the law is different but you may need to explain it. It shouldn’t
matter but there is evidence that the ATO triggers audits based on these matching. There is an argument that you should go back
and alter the past BAS to match the Tax Returns when they are completed so that it all reconciles, however there is an argument that
making any changes also triggers review and audit activity.

Our recommendation for any review or audit by the ATO is to ensure a phone call happens to explain the differences logically. You
may prevent a time consuming audit process for what is a difference in the law.
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Current and Proposed Laws—Where to from here?

Is the business using the “Small Business Concessions” for the purpose of the Uniform Capital Allowance (Depreciation of assets)?

Assuming the answer is YES, i.e. the business has an annual turnover of less than $2 million (as of today)1:
1. Write off to an expense account all items that cost less than $6,500 (GST excl)
2. Allocate to a Balance Sheet account “Business Assets General” all items costing over $6,500
3. Calculate the depreciation to be charged and reduce the values of the accounts in #2 above in line with the worksheets provided,
see page 10
4. Advise the Tax Agent of exactly how you have kept the books and provide details
If the answer is NO, they aren’t a Small Business:
1. Write off to an expense account all items that cost less than $100 (GST incl)
2. Allocate to a Balance Sheet account “Business Assets (low Value)” all items that cost less than $1,000 (GST excl)
3. Allocate to a Balance Sheet account “Business Assets” all items that cost more than $1,000 (GST excl)
4. Calculate the depreciation to be charged and reduce the values of the account in #2 and #3 above and charge the depreciation
from #2 and #3 above to the accumulated depreciation account in line with the worksheets provided in the detail explanation, see
page 12 and 13
5. Advise the Tax Agent of exactly how you have kept the books and provide details.
If the proposed law comes into effect then for a small business (less than $2m turnover)
1. Expense all items that cost less than $6,500 purchased before 31 Dec. 2013 and less than $1,000 (GST excl) for those purchased
after 31 Dec. 2013
2. Allocate all asset purchases over $6,500 (pre 31 Dec. 2013) or $1,000 (post) to a Balance Sheet account “Business Assets General”
3. Calculate the depreciation to be charged and reduce the values of the accounts in #2 above in line with the worksheets provided,
see page 10
4. Advise the Tax Agent of exactly how you have kept the books and provide details

If the answer is NO, they aren’t a Small Business then there is no change to the Accounting for Assets.

Changing thresholds
The thresholds keep changing. For the 2011/12 year it was $1,000 then for the 2012/13 year $6,500 and then for 2013/14 by law it is $6,500
but by announced law it will only be $1,000 from 1 January 2014. Below we discuss the $6,500 write-off and the changed law.
1
There is discussion about the definition of small business based on the turnover level of $2m. This threshold may change soon.

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Is it an expense?

Is the payment for an item or service that is directly

connected with producing my Taxable Income? Is Allocate the GST Inclusive cost to loan account or
it for “Business use”? “Non-Deductible Asset” account
No
or “Non-deductible expense” account
GST code is “N-T” or not reportable
Yes

Normal expense: Allocate to a P&L expense

Will the value of the item or service be used up in Yes account and claim back GST if applicable.
the “day to day” running of the business GST Code is “GST” or “FRE”
(Consumable)? (unofficially: Will it be consumed
in under a year?)

No
To repair something generally means to fix
Yes defects, including renewing parts. It does not
Is the payment a “Repairs & Maintenance”
mean totally reconstructing something or
expense?
substantial improvements

It is an Asset

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It is an Asset

Concept of it being a replacement of a previous

Is the payment a “Replacement” of a previous item? asset is irrelevant to the new payment: If it is a
If so then it is a NEW ASSET. new item, it is a new asset! It may however enable
the write-off of the old asset.
Yes & / or No

If it cost less than $100 (GST Incl) then claim Yes Claim back any allowed GST credit and claim
immediate deduction. [$90.91 GST excl] the cost as an expense GST Code: GST or FRE

No
Turnover is based on:
Is the business turnover (total income) more or less a. your actual turnover last financial year or
than $ 2 Million (GST Excl)? b. if the year before last was less and your
current year is likely to be less
Excluding GST
More than $2m Less than $2m

Claim back any GST credit and

PURCHASE Cost < $6,500 (<$1,000) (Excl GST) Claim the cost as an expense 100%
then immediate write off (“S1”) GST Code: GST

Claim back any GST credit and

Allocate the cost to Asset called
PURCHASE Cost > $6,500 (>$1,000) (Excl GST) “Business Assets (General)”*
then “General Business Pool” (“S2”) GST Code: CAP

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More than $2m Less than $2m

Motor Vehicles have an additional concession that

Motor Vehicle Cost > $5,000 (Excl GST)
is different to other assets, following 1 July 2012
then “Motor Vehicles” (“MV”) (Prior to 1 January 2014)
(until 31 Dec. 13) — see page 9

Explanations: (for business with turnover less than $2m (GST excl):
1. Purchases of < $6,500 (<$1,000) we have said to expense to the P&L.
Some accountants or business owners may still want these captured in assets on the Balance Sheet, in
which case create a separate Asset account “Business Assets claimed”, enter the purchase against this
account, and at the same time enter 100% depreciation against your “Accum Dep” account.
2. We have suggested classifying the assets into 3 accounts in the Balance Sheet
a. Business Assets (General)
b. Motor Vehicles (This account is probably not necessary)
c. Business Assets (Claimed)
[we suggest this is optional as we would expense the items to the P&L]
Businesses / Accountants may wish to see further breakdown of the assets into
“Asset Categories” ie
Business Assets (General)
Plant & Equipment – WDV “WDV” stands for Written Down Value
Office Equipment – WDV which is the old version of
Assets at Cost $
Less Accum Dep ($ )
Motor Vehicles – WDV = WDV $
This is closer to what you normally see and would also be acceptable.
3. The “Pool” concept is an Income Tax concept and not necessarily for account reporting, however for
small business we recommend that the Accounting/Reporting treatment mirror the required Income Tax
Treatment. Bookkeepers should allocate and seek guidance from the income tax adviser. “S1”, “S2”
are the Income Tax classes”

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 More than $2m

Claim back any GST credit and

PURCHASE Cost < $1,000 (Excl GST)
then “Low Value Pool” (O2) Allocate the cost to Asset called “Business Assets (Low
Value)” GST Code: CAP
or

PURCHASE Cost > $1,000 (Excl GST) Claim back any GST credit and
Are “normal” assets Allocate the cost to Asset called “Business Assets - Cost”
GST Code: CAP

Explanations: (for business with turnover greater than $2m (GST excl):
1. Purchases of < $1,000 (and >$100 (GST inc)) can be allocated to this “Low Value
Pool” and classified on the balance sheet as such. Some Accountants may not
want the dissection in the reports and hence the “pool” would only be considered
by them in the income tax preparation.
2. We have suggested classifying the assets into 2 main accounts in the Balance
Sheet
a. Business Assets (Low Value) [which you may not see or be required]
b. Business Assets - Cost
Businesses / Accountants may wish to see further breakdown of the assets into
“Asset Categories” ie
Business Assets
Plant & Equipment - Cost
Office Equipment - Cost
Motor Vehicles – Cost
3. The “Pool” concept is an Income Tax concept and not necessarily for account
reporting, however for small business we recommend that the Accounting/
Reporting treatment mirror the required Income Tax Treatment. Bookkeepers
should allocate and seek guidance from the income tax adviser.

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 More than $2m

If the value of assets falls below (<) $1,000 (Excl GST)

Then shift to “Low Value Pool”

Explanations: (for business with turnover greater than $2m (GST excl):
1. Assets whose value reduces to below (<) $1,000 can be re-allocated to the “Low Value Pool”
2. This occurs for the year when the opening value of the asset for the year is below $1,000
3. This may or may not require an alteration to the place where the asset is listed in the accounts – seek
guidance from the business or the accountant.
4. Assets acquired that cost less than $1,000 can be immediately allocated to this pool.

Depreciation Rates
Depreciation Table for <$2 million turnover * Depreciation Table for >$2 million turnover

Asset Threshold Depreciation Period Depreciation Rate Asset Threshold Depreciation Period Depreciation Rate

Asset Cost <$6,500 Expense at time of 100% write off Asset Cost <$90.91 Expense at time of 100% write off
acquisition acquisition
Asset Cost >$6,500 Year of acquisition 15% of cost Asset Cost <$1,000 Year of acquisition 18.75% of cost
Subsequent years 30% of WDV Subsequent years 37.5% of WDV
diminishing value diminishing value
Motor <$5,000 Expense at time of 100% write off Asset Cost >$1,000 Depreciation based on ATO TR 2014/4
Vehicle Cost acquisition effective life
Motor >$5,000 Year of acquisition $5,000 write off
Vehicle Cost claim $5,000 + (15% 15% of cost (less
of cost - $5,000) $5,000)
Subsequent years 30% of WDV
diminishing value
* All thresholds may reduce to $1,000 due to change of law
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 How to keep the books of the “General Business Pool”—
Turnover of less than $2 million (GST excl)

History: Once upon a time all assets were kept as individual assets, recorded individually and maintained on the detailed depreciation
schedule as individual line items. This was the requirement. This recording method still exists and is used significantly in business
records. It is no longer required to this level of detail for small business. In those olden days assets & depreciation were accounted for in
two different accounts: “Cost” and “Accum Depreciation”

Current concept: For Small Business; the assets can be simply added to the pool and the recording grouped, however detailed records
help prove any later disputes and may keep the accounts familiar.

Note: the detailed depreciation schedule IS NOT required – simply the same invoice records. Last year’s Accounts
Value of the account
The General Business Pool is created for all assets over $6,500 (<$1,000) (GST Excl) in cost Business Assets General $
The Books and records of the pool: recorded in the account called “Business Assets General”
Add purchases (the cost)
Opening value of the pool $ Debit Business Assets General $
Depreciation of 30% of that value for the year 30% = ($ ) Credit Bank/Loans $
Closing value of existing pool $
Add Less depreciation
Assets acquired during the year $ Debit Depreciation Expense $
Depreciation of 15% of cost 15% = ($ ) Credit Business Assets General $
Value of acquired assets at end of year $ $
Less proceeds from sale
Less any proceeds from sale of Pool ($ ) Debit Bank/Loans etc $
Credit Business Assets General $
Total value of pool at end of year $
If pool value falls below zero
If the pool is negative then a profit has been made from sales &/or depreciation previously Debit Business Assets General $ $
expensed has now been recouped and must be recognised as income. Credit Profit- Sale Assets (P&L) $
It is possible and correct for the historic “Cost” and the “Accum Dep” accounts to be merged. To bring balance up to $Nil

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 The Motor Vehicles Account is created for all MVs over $5,000 (GST Excl) in cost

The Books and records: recorded in the account called “Motor Vehicles”
(Note previous comments about law change: this may only apply until 31 Dec., 2013) Last year’s accounts
Value of the account
Motor Vehicles $
Opening value of Motor Vehicles $
Depreciation of 30% of that value for the year 30% = ($ ) Add purchases (cost)
Closing value of existing Motor Vehicles $ Debit Motor Vehicles $
Add Credit Bank/Loans $
Assets acquired during the year $ Less depreciation
Depreciation (for each vehicle) of Debit Deprecn Expense $
1) If new vehicles cost less than $5,000 then the total value & Credit Accum Dep Motor Vehicle$
2) If the new vehicle costs more than $5,000
a. $5,000 +
b. 15% of (Cost less $5,000) or
3) If new law then only 15% of Cost
Less value of sold vehicles
Value of acquired assets at end of year $ $
Debit Accum Dep $
Debit Profit – Sale of Assets
Less Value of Vehicles sold (Cost – Accum Deprecn) ($ )
Credit Cost of Vehicles $
Total value of Motor Vehicles at end of year $ Proceeds
Debit Bank/etc $
Credit Profit- Sale Assets (P&L) $
We note that an appropriate treatment would be that at the end of each year the balance of the
Motor vehicles account is transferred into the General Business Pool. This treatment works
as after year number one we have a written down value that is depreciated at 30% per year.
Motor Vehicles are not required to be separated after that first year.

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 How to keep the books for the “Low Value Pool”
- Turnover of more than $2m (GST Excl)

History: Similarly once upon a time all assets were kept as individual assets, recorded individually and maintained on the
detailed depreciation schedule as individual line items.

Current concept: The low value pool could in effect be one line of a “Running Balance” of the value of “Low Value Pool”
Assets. However detailed records help prove any later disputes.
Last year’s accounts
The Low Value Pool is created for all assets with value under $1,000 (GST Excl) Value of the account
Business Assets (LV) $
The Books and records of the pool: in account “Business Assets (LV)”
Opening value of the pool $ Add purchases
+ Value of assets shifted to LV Pool $ Debit Business Assets (LV) $
= Subtotal of opening value $ Credit Bank/Loans $
- Depreciation of 37% of that value for the year 37% = ($ ) Add Transfers into pool at WDV
Closing written down value of existing pool $ Debit Business Assets (LV) $
Add Credit Business Assets (cost) $
+ Assets acquired during the year (cost <$1,000) $ &
- Depreciation of 18.75% of cost 18.75% = ($ ) Debit Bus. Assets (Accum Dep) $
Value of added assets at end of year  $ Credit Business Assets (LV)

Less any proceeds from sale of Pool ($ ) Less depreciation

Debit Depreciation Expense $
Total value of pool at end of year $ Credit Business Assets (LV) $
Less Proceeds from sale
If the pool is negative then zero the pool by moving the negative into income Debit Bank/Loans etc $
Db Business Assets (LV) Credit Business Assets (LV)$
Cr Profit on Sale of Assets
If pool value falls below Zero
It is possible and correct for the “Cost” and the “Accum Dep” accounts to be merged. Debit Business Assets (LV) $
Credit Profit- Sale Assets (P&L) $

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 How to keep the books for the Normal Assets >$1,000
- Turnover of more than $2m (GST Excl)

Last year’s accounts & the

History & ALSO current: All assets are to be kept as individual assets, recorded individually detailed schedule
and maintained on the detailed depreciation schedule as individual line items. This was the Business Assets - Cost $
requirement & remains the requirement for this level of asset. The cost of Assets &
Depreciation were accounted for in two different accounts: “Cost” and “Accumulated Add purchases (the cost)
Depreciation” Debit Business Assets - cost $
Note: the detailed depreciation schedule IS required for businesses with a turnover of >$2 Credit Bank/Loans $
million.
Less items sold
AWHAT’S
control account foran
Cost of value
Business Assetstoisbelow
created for itover Debit Profit on Sale Assets $
new: Once asset decreases $1,000 can$1,000 (GST from
be removed Excl)this
The bookslist
and records of the “Asset Cost” is recorded in account called “Business Assets–at Credit Business Assets – Cost $
detailed and allocated to the “Low Value Pool”
cost” Less items transferred to LV pool
Opening Balance of Cost of the listed assets $ Debit Business Assets (LV) $
Add Assets acquired during the year $ Credit Business Assets - Cost $
Less Listed cost of any items sold during the year ($ )
Less Listed cost of any items transferred to “Low Value” Pool ($ )
Last year’s accounts & the
Closing Balance of Cost of the listed assets at end of year $
detailed schedule
Business Assets – Accum Dep $
A control account for Accumulated Depreciation of those Business Assets is created Add (Credit) depreciation
The Books and records of the “Accumulated Depreciation” This account is always a Credit balance Debit Depreciation Expense $
recorded in the account called “Business Assets – Accumulated Depreciation” Credit Bus. Assets Accum Dep $
Opening Balance of Accumulation of the listed assets $
Items sold
Add Depreciation charged on all individual assets per schedule $
Debit Business Assets Accum Dep $
Less Listed Accum Dep of items sold during the year ($ )
Credit Profit- Sale Assets (P&L) $
Less Listed Accum Dep of items transferred to “Low Value” Pool ($ )
Closing Balance of Accum Dep of the listed assets at end of year $ Items transferred
Debit Business Assets Accum Dep $
Credit Business Assets (LV) $

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Bookkeeping checklist / Information of work performed in relation to Assets and Depreciation

Business Name: _______________________________ Period Ended ___/___/___

❏ For the purposes of the Uniform Capital Allowance system we understand that this business is considered to be/ not to be a
“Small Business” (turnover less than $2m)

Our review says that for this financial year turnover is $ _______________

❏ All items that have been advised as private have been allocated to
o Sole Trader / Partnership
 Owners Drawings Account, or
 “Non Deductible Asset” Account or
 “Non-deductible expense account
o Companies / Trusts
 Loan Accounts (GST Inclusive costs)
 “Expenses subject to FBT” account
 Salary Packaged Items

❏ All items that were acquired as Replacements have been treated as new assets.
❏ All items that cost less than $100 GST Incl have been expensed
Allocation of new assets
Small Business: for year ended 6/13 threshold of $6,500
st
Subject to legislation change: threshold of $6,500 to Dec 31 and then $1,000
❏ New Items with cost less threshold Expensed to account ____________
❏ New Items with cost over threshold Allocated to account ____________
❏ New Items with life of more than 25 years are Allocated to account ___________

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Large Business
❏ New Items with cost less $1000 (GST Excl) Allocated to account ____________
❏ New Items with cost over $1000 (GST Excl) Allocated to account ____________

Items for Tax Agent Review

❏ All “consumables” where they are not assets but operating expenses have been expensed. Accounts of note that may require
your review are:

❏ The Repairs & Maintenance account has items that were considered by us to be items that were not Assets.
Depreciation Journals
We have posted Depreciation Journals in accordance with the calculations shown on the next page
(Attach the Information Sheet – How to keep records of Assets)

❏ Small Business:
Debit Depreciation Expense a/c no ___________for $_____________
Credit “Business Assets General” a/c no ___________for $ _____________
Credit “Business Assets (Long Life)” a/c no ___________for $ _____________

❏ Large Business
Debit Depreciation Expense a/c no ___________for $ _____________
Credit “Business Assets (Low Value)” a/c no ___________for $ _____________
Credit “Business Assets – Accum Deprecn” a/c no ___________for $ _____________

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